Claim Costs Could Rise Dramatically

By Jennifer Johnson Backer

Medical claims costs could jump 32 percent nationally by 2017 for individual policies under the Affordable Care Act health care law, according to a study released recently by the Society of Actuaries.

While some states will see medical claims costs slump, the study by the group of financial risk analysts found that 43 states will see increased premiums in their individual health insurance market, where people purchase health insurance on their own.

The research estimates that of the 52.4 million Americans who would not have had health insurance, about 32.4 million will gain coverage if all provisions of the Affordable Care Act are implemented next year.

The Affordable Care Act’s impact on costs has been a major issue since the law was passed in 2010 and has remained contested just months before the new health insurance markets roll out on Oct. 1.

In Tennessee, the study found that individual health care premiums could gain 46.4 percent by 2017 as more people join the individual health insurance pools. A separate model found that individual health premiums in Tennessee would rise by 43.4 percent without the Medicaid expansion.

In states like Alabama, the research predicted a 60.3 percent increase, while states like New Jersey can anticipate a 1.4 percent decline in premium costs.

Officials in some states and the Obama Administration disputed the analysis, saying it was based on flawed data and design. Critics also said the Society of Actuaries study left out key cost relief strategies such as tax credits to help people purchase policies and the possible price-cutting impact of increased competition. The study also did not fully model the differing results from states that decide to expand Medicaid, and those like Tennessee, which have declined the law’s Medicaid expansion.

The pricing disparities between states are complex, but the Society of Actuaries report said, on average, states that will see large increases generally have low current individual costs, and those showing decreases have high current individual costs. Other state-by-state disparities can be attributed to Medicaid expansion, whether or not the state sponsored a separate high-risk pool, demographics, income level difference, and current underwriting practices.

“Other changes in composition of the individual market will more than offset these lower costs, and in fact, will drive average costs up.”

Geoffrey Lindsey, an attorney with Rainey, Kizer, Reviere and Bell PLC in Memphis, says previous Tennessee laws allowed denials for pre-existing conditions and pricing disparity for other factors like age.

“You can see that the underwriting we’ve been dealing with in Tennessee has been totally different than the underwriting that has been going on in blue states,” he said.

The Affordable Care Act restricts insurers from denying coverage to Americans with pre-existing health conditions and varying premiums based on an individual’s health status. To help with rising costs from adding sicker people to the individual insurance market pools, the new law provides premium and cost-sharing subsidies for lower-income Americans. Individuals who do not purchase health insurance coverage will pay a tax penalty. Employers with more than 50 employees who do not offer coverage also will pay a fine.

The Society of Actuaries report did not make estimates for employer or group plans, which provide the majority of coverage in the U.S. That’s because people who don’t have health care coverage at their jobs will be the most impacted by the Affordable Care Act. The majority of those individuals will be required to purchase insurance through individual health insurance markets.

The study anticipates that the size of the individual market will more than double, an increase driven in part by people who are below 200 percent of the federal poverty line joining the market.

“This group of people are considered to be ‘good risks’ and are generally expected to bring down average costs,” said Kristi Bohn, a consulting health staff fellow at the Society of Actuaries. “But other changes in composition of the individual market will more than offset these lower costs, and in fact, will drive average costs up.”